THE PREFERENCE SHARES (REGULATION OF DIVIDENDS) ACT, 1960 
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ARRANGEMENT OF SECTIONS 
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SECTIONS 

1.  Short title and commencement. 
2.  Definitions. 
3.  Regulation of dividends on preference shares in certain cases. 
4.  Special provisions in relation to companies where a portion of their income is not chargeable to 

income-tax. 

4A. Deduction of income-tax. 
5.  Over-riding effect of Act. 
6.  Act not to apply to participating preference dividends. 
7.  Power to make rules. 

THE SCHEDULE 

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THE PREFERENCE SHARES (REGULATION OF DIVIDENDS) ACT, 1960 
ACT NO. 63 OF 1960 

[28th December, 1960.] 

An Act to regulate dividends on preference shares of certain companies. 

BE it enacted by Parliament in the Eleventh Year of the Republic of India as follows:— 
1. Short title and  commencement.—This Act may  be called the Preference Shares (Regulation of 

Dividends) Act, 1960. 

(2) It extends to the whole of India: 
Provided that it shall not apply to the State of Jammu and Kashmir* except to the extend to which the 
provision of this Act relate to the regulation of dividends on preference shares of banking and insurance 
companies and financial corporations. 

1[(3)  Notwithstanding  anything  contained in  sub-section  (2)  the  provision  of  this Act  shall, in  their 
application to the Union territory of Pondicherry, have effect subject to the modifications specified in the 
Schedule.] 

2. Definitions.—In this Act, unless the context otherwise requires,— 

(a) “Companies Act,” means the Companies Act, 1956 (1 of 1956); 
(b)  “company”  means  an  Indian  company  as  defined  in  2[clause  (26)  of  section  2  of  the             
Income-tax  Act,  1961  (43  of  1961)  and  includes  a  company  referred  to  in  sub-clause  (ii)  of               
clause  (17)]  of  the  said  section  which  has  made  arrangements  for  the  declaration  and  payment  of 
dividends within Indian in accordance with the rules made under the said Act; 

(c) “preference share” means a share which 3*** carries, as respects dividends, a preferential right 

to be paid a fixed amount or an amount calculated at a fixed rate; 

(d) “previous year” has the same meaning as in the 4[Income-tax Act, 1961 (43 of 1961)]; 
(e) “stipulated dividend”, in relation to a preference share, means the fixed amount or the amount 

calculated at fixed rate which the holder of such share has a preferential right to be paid as dividend; 

(f) all other word and expressions used but not defined in this Act and defined in the Companies 

Act shall have the meanings respectively assigned to them in that Act. 
3.  Regulation  of  dividends  on  preference  shares  in  certain  cases.—(1)  Where  the  stipulated 
dividend in respect of a preference share of a company  5[issued and subscribed for before the 1st April, 
1960],— 

(a) is specified to be free of income-tax and no deduction is made therefrom on account of the 

income-tax payable by the company, or 

(b) was being paid before the 1st April, 1960, without any deduction therefrom on account of the 
income-tax  payable  by  the  company,  notwithstanding  the  absence  of  any  specification  that  the 
dividend would be free of income-tax, 

1.  Ins. by Act 26 of 1968, s. 3 and the Schedule (w.e.f. 24-5-1968). 
2.  Subs.  by  Act  10  of  1965,  s.  72,  for  “clause  (7A)  of  section  2  of  the  Indian  Income-tax  Act,  1922  and  includes  a  company 

referred to in sub-clause (ii) of clause (5A)” (w.e.f. 1-4-1965). 

3. The words, figures and letters “having been issued and subscribed for before the 1st day of April, 1960” omitted by s. 72, ibid. 

(w.e.f. 1-4-1965). 

4. Subs. by s. 72, ibid., for “ Indian Income-tax Act, 1922 (11 of 1922)” (w.e.f. 1-4-1965). 
5. Ins. by s. 72, ibid. (w.e.f. 1-4-1965). 
*. Vide notification No. S.O. 3912(E), dated 30th October, 2019, this Act is made applicable to the Union territory of Jammu and 

Kashmir and the Union territory of Ladakh. 

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every  such  share  shall,  as  respects  dividends  declared  after  the  commencement  of  this  Act,  carry  a 
preferential right to be paid without any deduction aforesaid such amount as would exceed the stipulated 
dividend by thirty per cent. thereof. 

(2) Where the stipulated dividend in respect of preference share of a company issued and subscribed 
for after the 31st March, 1959 1[and before the 1st April, 1960] is free of income-tax, and the company, 
besides  paying  the  stipulated  dividend to  the  holder such  share,  pays  to  Government  on  his  behalf  any 
sum  on  account  of  income-tax  payable  thereon,  then,  every  such  share  shall,  as  respects  dividends 
declared after the commencement of this Act, carry a preferential right to be paid free of income-tax such 
amount  as  together  with  the  sum  aforesaid  would  exceed  the  stipulated  dividend  by  thirty  per  cent. 
thereof. 

(3)  Where  the  stipulated  dividend  in  respect  of  a  preference  share  of  a  company  1[issued  and 

subscribed for before the 1st April, 1960]— 

(a) is specified to be subject to income-tax and a deduction is made therefrom on account of the 

income-tax payable by the company, or 

(b) was being paid before the 1st April, 1960, subject to a deduction therefrom on account of the 
income-tax  payable  by  the  company,  notwithstanding  the  absence  of  any  specification  that  the 
dividend would be subject to income-tax, then every such share shall, as respects dividends declared 
after  the  commencement  of  this  Act,  carry  a  preferential  right  to  be  paid  subject  to  the  deduction 
aforesaid such amount as would exceed the stipulated dividend by eleven per cent. thereof. 
 (4)  Where  a  company  has  in  relation  to  a  preference  share  1[issued  and  subscribed  for  before  the             

1st April, 1960] declared,— 

(a) after the 31st March, 1959, and before he 1st July, 1960, a dividend in respect of a previous 

year relevant to its assessment year 1960-61 or a subsequent assessment year, or 

(b) after the 30th June, 1960, and before the commencement of this Act, a dividend in respect of 

any previous year,  

it shall declare, in respect of the said previous year, an additional dividend of such amount as, together 
with the dividend already declared, would exceed the stipulated dividend— 

(i) by thirty per cent. of the stipulated dividend in the cases referred to in sub-section (1), or 

(ii) by eleven per cent. of the stipulated dividend in the cases referred to in sub-section (3). 

(5) For the purposes of sub-section (1), sub-section (3) and sub-section (4), any reference therein to 
the stipulated dividend shall, in respect of a preference share issued and subscribed for on or before the 
31st March, 1959, be construed as a reference to the stipulated dividend as on that day. 

(6)  For  the  removal  of  doubts,  it  is  hereby  declared  that  any  reference  in  this  section  1[and                 

section 4A] to deduction made from a dividend “on account of income-tax payable by the company” does 
not  include  any  amount  deducted  by  the  company  from  the  dividend  under  2[section  194  of  the              
Income-tax Act, 1961 (43 of 1961)]. 

4. Special provisions in relation to companies where a portion of their income is not chargeable 
to income-tax.—3[Where any preference share of a company has been issued and subscribed for before 
the 1st April, 1960, and any portion of the profits and gains of the company] in respect of the relevant 
period  is  exempt  from  income-tax  under  the  4[Income-tax  Act,  1961  (43  of  1961)],  by  reason  of  such 

1. Ins. by Act 10 of 1965, s. 72 (w.e.f. 1-4-1965). 
2. Subs. by s. 72, ibid,. for “sub-section (3D) of section 18 of the Indian Income-tax Act, 1922 (11 of 1922)” (w.e.f. 1-4-1965). 
3. Subs. by s. 72, ibid., for certain words (w.e.f. 1-4-1965). 
4. Subs. by s. 72, ibid., for “Indian Income-tax Act, 1922 (11 of 1922)” (w.e.f 1-4-1965). 

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portion being agricultural income, then, for the purpose of the increase in the dividend in relation to any 
such preference share under the provisions of section 3, the increase of thirty per cent. or eleven per cent. 
referred to therein shall be taken to be such proportion of the said thirty per cent. or eleven per cent. as the 
case  may  be,  as  the  total  amount  of  the  profits  and  gains  of  the  company  excluding  the  portion  of  the 
profits  and  gains  which  is  so  exempt  in  respect  of  the  relevant  period  bears  to  the  total  amount  of  the 
profits and gains thereof in respect of that period. 

Explanation.—For the purpose of this section, “relevant period”, in relation to the profits and gains of 

a company, shall mean— 

(a) the previous years relevant to such of the three assessment years as immediately precede the 
assessment  year  ending  on  the  31st  March,  1961,  and  in  each  of  which  the  net  result  of  the 
computation of profits and gains of the company has not been loss or where there are only two such 
years, such two years, or where there is only one such year, such one year; or 

(b) in any  case  where clause  (a) is  not  applicable, the  previous  year  relevant  to  the  assessment 
year  ending  on  the  31st  March,  1961  or  a  subsequent  assessment  year  immediately  following 
thereafter in which the net result of the computation of profits and gains has not been a loss. 
1[4A. Deduction of income-tax.—Where the stipulated dividend in respect of a preference share of a 

company— 

(a) is specified to be subject to income-tax and a deduction is made therefrom on account of the 

income-tax payable by the company, or 

(b) is being paid subject to a deduction therefrom on account of the income-tax payable by the 
company,  notwithstanding  the  absence  of  any  specification  that  the  dividend  would  be  subject  to 
income-tax,  

2[such deduction made by the company from any dividend declared after the 28th day of February, 1966 
shall in no case exceed twenty-seven and a half per cent. of the aggregate of— 

(i) the stipulated dividend, and 

(ii) an amount equal to eleven per cent. of the stipulated dividend as specified in sub-section (3) 

of section 3.]] 

5.  Over-riding  effect  of  Act.—(1)  The  provisions  of  this  Act  shall  have  effect  notwithstanding 
anything to the contrary contained in any law for the time being in force or in the memorandum or articles 
of a company or in any agreement between the company and its shareholders or in any resolution passed 
by the company in a general meeting or by its Board of directors. 

(2)  Notwithstanding  anything  contained  in  this  Act,  a  company  may,  in  the  manner  provided  in 
section  106  of  the  Companies  Act,  increase  the  amount  of  dividend  in  respect  of  a  preference  shall 
beyond the limit specified in section 3 or section 4 of this Act. 

6.  Act  not  to  apply  to  participating  preference  dividends.—Nothing  contained  in  3[section  3  or 
section 4] shall apply to such part of any dividend on preference shares as is referred to in clause (i) of the 
Explanation to sub-section (1) of section 85 of the Companies Act. 

7. Power to make rules.—(1) The Central Government may, by notification in the Official Gazette, 

make rules for carrying out the purposes of this Act. 

(2) Every rule made under this section shall be laid as soon as may be after it is made before each 
House of Parliament while it is in session for a total period of thirty days which may be comprised in one 

1. Ins. by Act 10 of 1965, s. 72 (w.e.f. 1-4-1965). 
2. Subs. by Act 13 of 1966, s. 52, for certain words, figures, letters and brackets (w.e.f. 1-4-1966). 
3. Subs. by Act 10 of 1965, s. 72, for “this Act” (w.e.f. 1-4-1965). 

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session or in two successive sessions, and if, before the expiry of the session in which it is so laid or the 
session immediately following, both Houses agree in making any modification in the rule or both Houses 
agree that the rule should not be made, the rule shall thereafter have effect only in such modified form or 
be of no effect, as the case may be, so, however, that any such modification or annulment shall be without 
prejudice to the validity of anything previously done under that rule. 

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1[THE SCHEDULE 

[See section 1(3)] 

Modifications of the Act in its application to the Union territory of Pondicherry 

1. Sections 3 and 4 shall be omitted. 

2. In section 4A, for the words, brackets, letters and figures “twenty-seven and a half per cent. of the 
aggregate  of  (i)  the  stipulated  dividend,  and  (ii)  an  amount  equal  to  eleven  per  cent.  of  the  stipulated 
dividend as specified in sub-section (3) of section 3”, the following shall be substituted, namely:— 

“Twenty-seven and a half per cent. of the stipulated dividend: 

Provided that in a case where the preference shares in respect of which the dividend is declared or 
paid form part of the preference share capital of a company which, in respect of the greater part of its 
total income, is entitled to a deduction from tax chargeable form it under the Income-tax Act, 1961   
(43 of 1961), under a notification issued by the Central Government under section 294A of that Act, 
the reference to twenty-seven and a half per cent. of the stipulated dividend shall be construed as a 
reference to— 

(i)  where  the  stipulated  dividend  in  respect  of  such  preference  share  is  declared  or  paid  in 
respect of the previous year relevant to the assessment year commencing on the 1st day of April, 
1965, the said twenty-seven and a half per cent. as reduced by forty-five per cent. thereof; 

(ii)  where  such  dividend  is  declared  or  paid  in  respect  of  the  previous  year  relevant  to  the 

assessment  year  commencing  on  the  1st  day  of  April,  1966,  the  said  twenty-seven  and  a  half              
per cent. as reduced by twenty-five per cent. thereof; 

(iii)  where such dividend is  declared  or paid  in  respect  of the previous  year  relevant  to  the 
assessment year commencing on the 1st day of April, 1967, or the 1st day of April, 1968, or the 
1st  day  of  April,  1969,  the  said  twenty-seven  and  a  half  per  cent.  as  reduced  by  ten  per  cent. 
thereof. 

Explanation.—For the removal of doubts it is hereby declared that any reference in this section to 
deduction  made  from  a  dividend  on  account  of  the  income-tax  payable  by  the  company  does  not 
include  any  amount  deducted  by  the  company  from  that  dividend  under  section  194  of  the            
Income-tax, 1961 (43 of 1961).”. 

3. In section 5, sub-section (2) shall be omitted. 

4. Section 6 shall be omitted.] 

1.  Added by Act 26 of 1968, s. 3 and the Schedule (w.e.f. 24-5-1968). 

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